Monday, July 20, 2009



Litigation Release No. 21129 / July 14, 2009

On July 14, 2009, the Securities and Exchange Commission (the Commission) filed settled Final Judgments against L. Dennis Kozlowski, the former Chairman and Chief Executive Officer of Tyco International Ltd. (Tyco), and Mark H. Swartz, the former Chief Financial Officer of Tyco, in the Commission's action arising from their violations of the federal securities laws while officers of that company. The Final Judgments permanently enjoin Kozlowski and Swartz from violating, or aiding and abetting violations of, the antifraud, proxy statement, periodic reporting, books and records, and lying to auditors provisions of the federal securities laws and permanently bar each of them from serving as an officer or director of a public company.

The Commission's complaint alleges that, from 1996 until June 2002, Kozlowski and Swartz failed to disclose hundreds of millions of dollars in executive indebtedness, executive compensation, and related party transactions that they received while at Tyco. As alleged in the complaint, Kozlowski and Swartz granted themselves undisclosed low interest and interest-free loans from the company that they regularly used for personal expenses and other unauthorized purposes. They repeatedly arranged to have many of these loans forgiven by Tyco. They also engaged in undisclosed related party transactions. In violation of the federal securities laws, Kozlowski and Swartz failed to disclose their indebtedness, loan forgiveness, and related party transactions and caused Tyco to fail to disclose those items in its proxy statements and annual reports.

Without admitting or denying the allegations in the Commission's complaint, Kozlowski and Swartz consented to the entry of Final Judgments that will permanently enjoin each of them from violating Section 17(a) of the Securities Act of 1933 (Securities Act), Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 (Exchange Act), and Exchange Act Rules 10b-5, 13b2-1, and 13b2-2, and from aiding and abetting violations of Sections 13(a), 13(b)(2)(A), and 14(a) of the Exchange Act and Exchange Act Rules 12b-20, 13a-1, and 14a-9. The proposed Final Judgments also bar Kozlowski and Swartz, pursuant to Section 20(e) of the Securities Act and Section 21(d)(2) of the Exchange Act, from serving as officers or directors of a public company. The proposed Final Judgments are subject to the approval of the United States District Court for the Southern District of New York.

In 2005, a New York State court sentenced Kozlowski and Swartz to prison terms of 8 1/3 to 25 years for their roles in the Tyco fraud. Pursuant to their criminal convictions, Kozlowski and Swartz also paid approximately $134 million in restitution to Tyco and criminal fines of $70 million and $35 million, respectively. On October 16, 2008, the New York Court of Appeals affirmed Kozlowski's and Swartz's convictions. On June 8, 2009, the United States Supreme Court denied a petition by Kozlowski and Swartz for a writ of certiorari.

Tuesday, July 7, 2009

Fund Pays SEC $17.8 Million To Settle Market Timing Scheme

July 7, 2009

The SEC claims Headstart Advisers LTD., which had at least $500 million in funds at its height, would trade mutual funds after the market closed but still receive the current day's net asset value, profiting on post-market events. The trades in question, took place between September 1998-September 2003. The scheme entailed engaging in late trading through Headstart's accounts at two broker-dealers. The commission alleges the fund earned about $198 million through the process.

As for its part in the scheme, Chief Investment Officer Najy Nasser, who was personally fined $600,000 commented, "Headstart is very pleased to have reached a settlement." He added, " We responded to U.S. concerns about market timing and immediately ceased this element of Headstart's business in September 2003." Given the CFO's statement, it is somewhat ironic that Headstart is neither admitting nor denying the allegations.

In total Headstart Advisers Ltd., its chief investment officer and the hedge fund itself will pay $17.8 million. Although Headstart Fund is now defunct, the adviser said the settlement will allow them to concentrate on its business as an investment adviser to offshore hedge funds and expand the core business with the launch of new funds.